What Autumn Statement 2012 offers freelancers

Article Index:

Self-Employed/Freelancer announcements:

- Cash Basis for Calculating Tax (incl. Simplified Expenses)

- Personal Allowance Boost

- Get Self-Employed Aid from Day One

- Freelance and Work Opportunities, in the Creative sector and beyond

Workplace announcements:

- Miscellaneous

Contractor announcements:

- IR35 & Controlling Persons

- General Anti-Abuse Rule

- Expenses

Self-Employed/Freelancer announcements

Cash Basis for Calculating Tax

(Ref: 2.94)

Yesterday’s Autumn Statement (AS) confirms the government will introduce a new cash basis for small, unincorporated businesses to calculate their tax from April 2013.

Businesses with receipts of up to £77,000 will be eligible and will be able to continue to use the cash basis until receipts reach £154,000.

Ed Molyneux, of accountancy software firm FreeAgent, said this announcement of optional cash-basis reporting was the “most important” out of all yesterday’s offerings for the smallest business sector.

“The costs of compliance - usually for tax filing - for most micro businesses are hugely disproportionate to their profits, so having the option of cash-basis reporting is great news,” he said. “It will make the whole process easier and less expensive for millions of small businesses across the UK which, in turn, will help them to flourish and grow."

The announcement was also welcomed by the Charted Institute of Taxation. “A system of cash accounting for the smallest businesses, as envisaged by the OTS, would reduce burdens and compliance costs for those businesses,” saidthe institute’s Andrew Gotch

“The OTS’s proposals were for a truly simple system that businesspeople can understand but HMRC’s initial proposals were not. It does sound as if changes are afoot and we can only hope that the result is what it should be: a simple system.”

Both of the tax captains will also presumably welcome a system of ‘simplified expenses’ for the same small, unincorporated business (Ref 2.95), which the government says it will introduce. Under the system, such self-employed, freelance traders and consultants will be able to use flat rates to calculate some types of expenses rather than having to calculate actual amounts.

Personal Allowance Boost

(Ref: 1.144)

Particularly helpful to self-employed workers on low and middle incomes, the government will increase the personal allowance by a further £235 in April 2013, taking it to £9,440.

As a result, the rise of £1,335 is the largest ever cash increase. This will benefit an estimated 24.4m people and lift an additional quarter of a million people out of income tax altogether. Most basic and higher rate taxpayers will gain equally by £47 from this increase.

An accountant serving the self-employed, DNS Associates, indicated that its clients wouldn’t sniff at the increase.

Managing director Sumit Agarwal explained: “I personally feel that government has done right thing by not bringing in any additional legislation [on the self-employed] while offering some good news – that [the] personal allowance is increased to £9,440, which is huge boost for hard-working self employed people.”

Get Self-Employment Aid from Day One

(Ref: 2.145)

The chancellor used Autumn Statement 2012 to extend the New Enterprise Allowance scheme, with the effect that job-seekers can now access self-employment support from day one of their Jobseeker’s Allowance claim.

Freelance & Work Opportunities, in the Creative sector and beyond

(Ref: 2.73,2.144, 2.31, 2.75, 2.115, 2.9, 1.88)

In the March Budget, the government said it would introduce corporation tax reliefs for the video games, animation and high-end television industries from April 2013.

Under these reliefs, the AS says, qualifying companies will be able to choose between an additional deduction at a rate of 100 per cent of enhanceable expenditure or a payable tax credit at a rate of 25 per cent of qualifying losses surrendered.

Accountancy firm Kingston Smith reflected: “Providing the tax relief is made sufficiently attractive, the proposed new reliefs for creative industries should deliver a real boost for this sector. They will enable the UK to match the incentives offered elsewhere and give this country a greater competitive edge internationally.”

Elsewhere in the Autumn Statement, the government commits to digital content skills. It will do this by matching “fund voluntary industry contributions” of up to £6m over the next two years to the existing Skills Investment Fund (administered by Creative Skillset). This will expand the fund’s scope to include support for skills provision in the film, television, animation and video games sectors.

For London’s “Tech City,” a major user of freelance skills, the government will provide up to £50m of funding to support the construction costs of the Open Institute as part of the Old Street Roundabout regeneration project.

In Wales, the government will make enhanced capital allowances available at designated sites in the Ebbw Vale and Haven Waterway Enterprise Zones, with the potential to deliver more than 1,000 new jobs.

Internally, the government will invest in expanding the online services that HMRC offers over the next three years. Small and medium-sized enterprises will be able to access all the tax services they need from a personalised homepage with secure digital messaging. Taxpayers in Self-Assessment will be able to conduct all tax transactions online. Pay As You Earn taxpayers will be able to transact with HMRC online for the first time.

Also in Whitehall, a recently published document - the Digital Efficiency Report , sets out how departments could save approximately £1.2bn over the remainder of the current spending review period by continuing to move their transactional services online and become ‘digital by default’.

For the UK as a whole, the second wave of cities in the government’s Urban Broadband Fund, designed so the UK can have the “best connected communications networks in Europe,” have been identified. They are Brighton and Hove; Cambridge, Coventry, Derby, Oxford, Portsmouth, Salford, and York in England; Aberdeen and Perth in Scotland; Newport in Wales; and Derry/Londonderry in Northern Ireland.

Workplace announcements

- From April 2014, the main rate of corporation tax will fall by 1% to 21% (but no change to the SCR)

- A temporary two-year increase in the Annual Investment Allowance from £25,000 to £250,000

- Creation of a £1bn business bank to help smaller businesses access finance and support

- Extension of the temporary doubling of the small business rate relief scheme for a further 12 months from April 2013

- Three pence fuel duty rise cancelled

Contractor announcements

IR35 & Controlling Persons

(Ref: Autumn Statement 2.103)

Yesterday’s Autumn Statement (2012) states that the government has decided NOT to proceed with a proposal to tax those who meet the definition of a ‘controlling person’ at source.

According to the Treasury, the decision has been taken because HMRC’s new approach to policing IR35, along with the measures introduced in the public sector this year, are sufficient to prevent the tax lost through disguised employment in this way.

However, the government said it would strengthen the existing Intermediaries Legislation (IR35) to “put beyond doubt that it applies to office holders for tax purposes.”

Both the Treasury and HM Revenue & Customs declined to comment to FreelanceUK on what evidence each has obtained that there is “doubt” that IR35 applies to freelance contractors who are ‘office holders’ of their end-user. The departments were also unable to elaborate on what “strengthening IR35” will mean in practice. However the PCG claims it understands from HMRC that a “relatively minor change to the legislation” is intended.

Contractor accountancy firm ClearSky Accounting responded to the news that the ‘controlling persons’ proposal will not be introduced in 2013, as originally planned: “The decision not to press ahead with the controlling persons legislation represents a victory for common sense, and will be wholeheartedly welcomed by the contracting community.”

Contractor tax specialists Brookson agreed: “This is great news in particular for interim managers and contractors holding senior project manager positions

“[And] we welcome the government acknowledging that HMRC’s new approach to policing IR35 is sufficient to ensure that contractors are tax appropriately.

“A word of warning however: HMRC has made it clear that they will police and enforce IR35 more vigorously than they have done previously so the importance of limited company contractors having appropriate IR35 support is now greater than ever.”

Meanwhile, tax advisors’ body the Chartered Institute of Taxation welcomed the announcement that use by senior executives of personal service companies when taking on full-time roles will be dealt with through existing rules (IR35), rather than through new measures (Controlling Persons). It says the government has stepped down on the issue following consultation over the summer.

“This is a welcome example of the government consulting, listening and acting on the responses,” said CIOT tax policy director John Whiting.

“The government is entirely correct in its wish to ensure that those running government agencies and other public sector bodies are paying their fair share of tax. But that can be met using a combination of enforcing existing legislation and the new rules for central government appointments.

“This is a practical and proportionate way forward. Legislation requiring deduction of PAYE/NICs at source for payments to intermediaries would have added unnecessary complexity to the tax system and would have added to administrative burdens in the private sector who were not the causes of the problem.”

Interim Partners, a staffing supplier, endorsed: “Forcing interim managers to pay tax as though they are employees was a terrible idea. The government’s U-turn will be a big relief to businesses that are heavily reliant on skills of interim managers.

“Businesses are particularly reliant on the skills of interim managers at the moment because of the challenging economy. This would have been the worst possible time for the Government to hit interim managers with a tax grab.

“Interims should not be treated as payroll employees, because they just aren’t the same. They do not have the legal protections that permanent employees have. Very often, interims have little job security, with their work coming in peaks and troughs. Interims often have long gaps between short periods of employment.”

General Anti-Avoidance Rule

(Ref: 1.178)

The chancellor yesterday confirmed that guidance and draft legislation on the UK’s first ever General Anti-Abuse Rule (GAAR) will be published later this month, with a view to taking effect from next year. The rule will apply right across the entire taxpayer base.

ClearSky’s boss Derek Kelly said: “As I’ve said before, the measure should focus on genuine tax avoidance and not deter potential entrepreneurs from going into business on their own.”

PKF’s John Cassidy preferred: “Although the chancellor has confirmed that a general anti-abuse rule will be introduced from April 2013, it is going to be very difficult to quantify how much revenue it will protect.”


(Ref: 2.96)

Despite there being no announcement to address or tackle certain travel and subsistence schemes, the Office of Tax Simplification will carry out a review of ways to simplify the taxation of employee benefits and expenses (as well as employee termination payments). The OTS review will include an initial scoping exercise to identify which areas are “most complex” for taxpayers.

“History shows that the government tends to take forward OTS proposals.” said Ms Cottrell, who was seconded by the OTS for its review of IR35. “So it could be a case of ‘watch this space’ for expenses”.

But such action isn’t enough for the REC. In light of abusive schemes and an unsuccessful ‘pay-day-by-pay day’ model, the staffing body said: “[The government has] not made a commitment to improve their efforts to crack down on the abuse of travel and subsistence schemes.

“We will continue to argue for greater action. Abuse of these schemes distorts the recruitment market and gives unscrupulous recruiters an unfair advantage over those who play by the rules.”


6th December 2012

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